At the time, we chose not to make the Shell study available to the general public, and it still remains unpublished today. The reasons had to do with the lack of scientific reliability for our conclusions. Our sample of 30 companies was too small. Our documentation was not always complete. And, as the management thinker Russell Ackoff once pointed out to me, our four key factors represented a statistical correlation; our results should therefore be treated with suspicion. Finally, as the authors of the study noted in their introduction, "Analysis, so far completed, raises considerable doubts about whether it is realistic to expect business history to give much guidance for business futures, given the extent of business environmental changes which have occurred during the present century."3
Nonetheless, our conclusions have recently received corroboration from a source with a great deal of academic respectability. Between 1988 and 1994, Stanford University professors James Collins and Jerry Porras asked 700 chief executives of U.S. companies-large and small, private and public, industrial and service-to name the firms they most admired. From the responses, they culled a list of 18 "visionary" companies. They didn't set out to find long-lived companies, but, as it happened, most of the firms that the CEOs chose had existed for 60 years or longer. (The only exceptions were Sony and Wal-Mart.) Collins and Porras paired these companies up with key competitors (Ford with General Motors, Procter & Gamble with Colgate, Motorola with Zenith) and began to look at the differences. The visionary companies put a lower priority on maximizing shareholder wealth or profits. Just as we had discovered, Collins and Porras found that their most-admired companies combined sensitivity to their environment with a strong sense of identity: "Visionary companies display a powerful drive for progress that enables them to change and adapt without compromising their cherished core ideals."4
At Shell, we never conducted any study of similar diligence. Nonetheless, the Shell study remained uppermost in my mind for years. In our unscientific way, we had found four characteristics that seemed, when put together, to give us a description of a highly successful type of company-a company that could survive for very long periods in an ever-changing world, because its managers were good at the management of change.
Defining the Living Company
Over time, the same four factors that we developed in our study of long-lived companies at Shell have continued to resonate in my mind. Gradually, they began to change my thinking about the real nature of companies-and of what it means for the way that we, managers at all levels, run those companies. I now see these four components this way:
1. Sensitivity to the environment represents a company's ability to learn and adapt.
2. Cohesion and identity, it is now clear, are aspects of a company's innate ability to build a community and a persona for itself.
3. Tolerance and its corollary, decentralization, are both symptoms of a company's awareness of ecology: its ability to build constructive relationships with other entities, within and out-side itself.
4. And I now think of conservative financing as one element in a very critical corporate attribute: the ability to govern its own growth and evolution effectively.
Moreover, the question remains: Why would these same characteristics occur again and again in companies that had managed to out-live others?
In a sense, I have been intrigued by these issues all of my working life, beginning with my time at university. I am convinced that the four characteristics of a long-lived company are not answers. They represent the start of a fundamental inquiry about the nature and success of commercial organizations and their role in the human community.
Not coincidentally, these four basic components have also provided the framework for this book. Put together, they give clues to the real nature of companies, and they form a set of organizing principles of managerial behavior-critical aspects of the work of any manager who wants his or her company to survive and thrive for the long term.
The Shell study also reinforced a concept I have developed since my student days: to consider and talk about a company as a living entity. In this, I do not stand alone. Many people naturally think and speak about a company as if they were speaking about an organic, living creature with a mind and character of its own. This common use of the language is not surprising. All companies exhibit the behavior and certain characteristics of living entities. All companies learn. All companies, whether explicitly or not, have an identity that determines their coherence. All companies build relationships with other entities, and all companies grow and develop until they die. To manage a "living company" is to manage with more or less consistent, more or less explicit appreciation for these facts of corporate life, instead of ignoring them.
It probably doesn't matter very much whether a company is actually alive in a strict biological sense, or whether "the living company" is simply a useful metaphor. As we will see throughout this book, to regard a company as a living entity is a first step toward increasing its life expectancy. This book is about the idea of the living company, its philosophical underpinnings, its application in practice, and the power and capability that seem to come from adopting it.
For the idea of a living company isn't just a semantic or academic issue. It has enormous practical, day-to-day implications for managers. It means that, in a world that changes massively, many times, during the course of your career, you need to involve people in the continued development of the company. The amount that people care, trust, and engage themselves at work has not only a direct effect on the bottom line, but the most direct effect, of any factor, on your company's expected lifespan. The fact that many managers ignore this imperative is one of the great tragedies of our times.
What, then, does managing a living company mean on a day-to-day basis? The path to the answer starts with another question, the question of corporate purpose: What are corporations for?
Financial analysts, shareholders, and many executives tell us that corporations exist primarily to provide a financial return. Some economists offer a somewhat broader sense of purpose. Companies, they say, exist to provide products and services, and therefore to make human life more comfortable and desirable. "Customer orientation" and other management fashions have translated this imperative into the idea that corporations exist to serve customers. Politicians, meanwhile, seem to believe that corporations exist to provide for the public good: to create jobs and ensure a stable economic platform for all the "stake-holders" of society.
But, from the point of view of the organization itself-the point of view that allows organizations to survive and thrive-all of these purposes are secondary.
Like all organisms, the living company exists primarily for its own survival and improvement: to fulfill its potential and to become as great as it can be. It does not exist solely to provide customers with goods, or to return investment to shareholders, any more than you, the reader, exist solely for the sake of your job or your career. After all, you, too, are a living entity. You exist to survive and thrive; working at your job is a means to that end. Similarly, returning investment to shareholders and serving customers are means to a similar end for IBM, Royal Dutch/Shell, Exxon, Procter & Gamble, General Motors, and every other company.
If the real purpose of a living company is to survive and thrive in the long run, then the priorities in managing such a company are very different from the values set forth in most of the modern academic business literature. Such a purpose also contradicts the views held by many managers and shareholders. To be sure, many management fashions resonate with the idea of a learning company-for example, the concepts of the "learning organization" and "knowledge as a strategic as-set." But there are serious doubts that even the most enthusiastic managers and shareholders have fully explored the ramifications of these concepts.
The result: in today's increasingly volatile business environment, without the priorities of the living company, most managers will find that their companies do not have the habits to accomplish what they hope to achieve. On the other hand, exploring the ramifications of managing an entity that is alive, with the intent of handing it over to one's successors in better health than when one received it, is deeply gratifying. The owners of the firms in London's Tercentenarian Club and the managers of the Shell study survivors are usually exponents of a deeply felt corporate pride.
